Really what happens is that the banks don't wish to be outcompeted so if something starts taking their business under normal circumstances then it gives them the incentive to fix the problem. But that's exactly why the alternate systems should be permitted -- it gives them the kick in the ass needed to make the banking system fix its shortcomings.

> OTOH, these kinds of systems tend to have the problems that all the reddit alternatives have: they capture the least attractive and most problematic business because they only end up employed by an unusual subset of people.

That's what they're for. They serve the needs of the people who the traditional banking system doesn't serve.

And it's not obvious that this is even the case, if they would be allowed to operate openly instead of being something you only use because you cannot use anything else.

For example, there are different kinds of businesses. In some cases the business itself is questionable, e.g. because it's very small and has no reputation history, and then you want a payment system (like credit cards) that offers buyer protection and chargebacks so the customer can feel confident that if the seller doesn't send the goods they can get their money back.

In other cases the business is perfectly trustworthy but it's the kind of business where the customers like to commit fraud, e.g. because the goods can easily be resold after being purchased with a stolen credit card. For this you want an irreversible payment system so the honest merchant can't get ripped off by these scammers.

Sometimes you want a payment system where the buyer can be anonymous, e.g. so that nobody is tracking what kind of literature you purchase.

You don't want a one-size-fits-all system, you want the diversity. Which you can't have if the law mandates one specific kind of system.